As the new U.S. tax bill makes its way towards the House of Representatives for final approval and President Donald J. Trump’s desk for signing into law, WikiTribune looks at what it means.
The U.S. House of Representatives approved the final changes to Trump’s $1.5 trillion tax bill on Tuesday in what is the president’s first major legislative victory in office. The Senate passed the bill earlier today. The president is expected to sign the tax bill into law.
President Trump pushed aggressively to pass this tax bill before the holidays.
“By cutting taxes and reforming the broken system, we are now pouring rocket fuel into the engine of our economy,” Trump said in a prepared speech after the House vote.
What is the new U.S. tax bill?
- The Republican Party (or GOP) worked on the new tax bill with opposition from the Democratic Party, but the bill “rocketed” through Congress in mere weeks, Reuters reported.
- In contrast, the last time Congress refurbished the U.S. tax code was in 1986 under former Republican President Ronald Reagan. The process took years and was drafted after months of open debate and public hearings.
- It was supported along clear party lines: Republicans in favor, Democrats in opposition.
- The 2017 bill faced a last-minute revote after it was found that procedural rules had been violated.
- The same goes for American citizens, according to the BBC’s North America reporter Anthony Zurcher, who also said “many Americans view the legislation as largely benefitting others.”
The major changes
- Corporate tax: Will be set at 21 percent, instead of the current rate of 35 percent. Prior to the change, the U.S. tax rate was the 4th highest in the world, and for comparison, European countries average 18.35 percent, according to the Tax Foundation.
- Large corporations in the U.S. often do not pay the official 35 percent tax rate, according to a 2015 study from the Institute of Tax and Economic Policy. The think-tank found that 288 out of the Fortune 500 companies had an effective corporate tax rate of 21.2 percent between 2008-2015. Another 48 top corporations paid less than 10 percent in federal taxes. 18 paid none.
- Individual taxes: The size of the proportional tax cut varies depending on income. A single person earning less than $9,525 will continue with the same tax rate of 10 percent, according to Fortune. Meanwhile, a single person earning between $9,525-$38,700 will get a tax cut of 3 percent. Someone in the new tax bracket of $82,500-$157,500 will have a 4 percent cut, compared to the previous $93,700-$195,450 bracket. The numbers are different for married couples, which you can see on Fortune.
- Estate tax: NBC News reports that fewer people will pay the estate tax, commonly referred to as the “death tax” by critics, which is applied to larger inheritances. Under current law, Americans can pass on up to $5.5 million tax-free or $11 million for married couples. The threshold will now be doubled, so now the first $11 million ($22 million for couples) that people pass on to their heirs in property, stocks and other assets will be tax-free.
- State taxes: The state and local taxes (SALT) deductions will be lower, meaning that wealthy Americans in high-tax states will not be able to reduce their federal tax bill. This will disproportionately affect those living in liberal “blue” states.
- The Tax Foundation reports that SALT deductions will be capped at $10,000 for income, sales and property taxes.
- Debt: By cutting taxes by $1.5 trillion over the next decade, the GOP tax bill will accelerate growth of U.S. federal debt, according to Axios. The debt would rise to between 98 percent and 100 percent of GDP by 2027, according to the Committee for a Responsible Federal Budget (CRFB), an independent, non-profit, bipartisan public policy organization.
Provisions in bill unrelated to tax-rates
- Oil and gas and drilling: Trump tax bill also included allowing for natural resource drilling in the Arctic National Wildlife Refuge (ANWR), during his televised speech (ABC News). These Arctic areas have been protected since 1960 for environmental reasons, posing possible problems for Alaskan animals. The Seattle Times reports that 1.5 million acres will be open to oil development, which has been met with harsh rebuke from environmentalists.
- Health care: The Affordable Care Act, commonly known as Obamacare, will also be affected. The individual mandate, the key provision that forces every American to have health coverage, will no longer be enforced. (Politico) . The Supreme Court ruled the fee for not signing up for health insurance is considered as a tax, allowing Republican lawmakers to remove it in the bill.
Praise and criticism
- House Speaker Paul Ryan announced the vote in the Senate on Tuesday by saying: “Today we are giving the people of this country their money back. This is their money after all!” He praised the vote adding: “This is a good day for America.”
- Steven Rosenthal, senior fellow at the nonpartisan think-tank Tax Policy Center, said the bill was “ideally suited for commercial property businesses, where there aren’t a lot of workers, but there is a lot of valuable property around.”
- However, some critics see the tax bill as merely a means to benefit the wealthy and corporations. Democrats have severely criticized the legislation as they say it will widen the income gap between rich and poor.
- Democratic senator and Senate minority leader Chuck Schumer warned Republicans that they would pay a price for the “awful legislation” in next year’s mid-term elections. He blasted the bill as a “disgrace,” according to The Guardian.
- Maya MacGuineas, CRFB president, said in a statement that “the Senate tax bill would do too little to grow the economy and a lot to grow the debt,” adding that the organization is “hugely disappointed” about the “fiscally risky plan.”
- Americans will “wake up with a new tax code” on January 1, according to Speaker Paul Ryan.
- President Trump predicted that the tax bill will create, “more jobs, higher wages and massive tax relief for American families and American companies,” in a prepared speech given on December 13.
- Republican leaders in the House said they will next target welfare spending, with both Medicare, the federal health program primarily for the elderly, and Medicaid, the federal health insurance program for lower income Americans, on the table for cuts. The Washington Post has more detail on those potential moves.